All sector guidance for mandatory climate related disclosures released

Final all sector CRD Guidance: Key changes from draft Guidance

While the final Guidance is significantly different in look and feel from the 2022 working draft – with a more user-friendly layout, more visual elements and examples – there are few substantive changes. Climate reporting entities with balance dates already “on the clock” for mandatory CRD (for financial years beginning after 1 January 2023) can now use the Guidance to inform their preparation for their first disclosures.

The Guidance provides:

• Discussion and contextual information on each of the XRB’s climate standards, including guidance on key concepts and principles;
• Extensive guidance on the four main thematic areas of NZ CS 1: governance, metrics and targets, strategy and risk management; and
• Guidance on creating coherent financial statements including a list of key questions that an entity may wish to answer through holistic reporting.

The key changes from the working draft are:

• Significant additional guidance for certain disclosures. There is detailed guidance on scenario analysis (NZ CS 1 paragraph 11(b)) with examples, and guidance on the disclosure of current impacts of climate change on an entity (NZCS 1, para 12(a)).
• New and amended links to external sources. The Guidance includes links to external resources including from Chapter Zero, the Climate Governance Initiative, the Aotearoa Circle and entities’ voluntary disclosures, illustrating how quickly the CRD landscape is developing in New Zealand and internationally.
• Examples of high-quality disclosures and reporting. These extracts of voluntary reporting from New Zealand entities exemplify exactly what is expected and were not previously a part of the draft Guidance.
• Clarification on how NZ CS 2 and 3 work as an overlay to the NZ CS 1 disclosure requirements. Unlike the working draft, the final Guidance references all three Climate Standards, including the information and fair presentation principles within NZ CS 3, which provides direction on when to include information that is otherwise not required to be disclosed.

Where to next?

The XRB moves now to updating the draft Guidance for Managed Investment Scheme (MIS) Managers released in July 2022 and providing additional sector-specific guidance.

Sector-level scenario analysis processes for the banking; fund manager; Kiwisaver Provider, health and life insurance; and retail sectors are due to be completed in the coming months. Other key sectors such as energy and transport are still in the early stages of industry engagement. Later in 2023, the XRB will also be providing guidance on transition planning, as entities work towards the publication of their first mandatory transition plans in their second reporting year.

Development continues in other areas of the CRD regime:

• XRB completed its consultation on the scope of assurance engagements for CRD in March 2023 which has elicited a broad range of views generally demarcated by larger audit firms seeking to primarily reference existing financial assurance standards on the one hand, and practitioners not traditionally involved in financial statement audits on the other. A final standard to regulate assurance practitioners is needed sufficiently in advance of mandatory assurance over GHG emissions disclosures within CRD commencing from October 2024 and to assist those arranging voluntary assurance of disclosures before then.
• MBIE completed its consultation on proposals to license assurance providers and potentially broaden assurance to cover the full climate statements in February 2023 but Cabinet decisions are unlikely to be prioritised before the October 2023 election.
• The FMA is considering exemptions from the CRD requirements for foreign exempt issuers without significant business operations or investments in New Zealand. This consultation ended on 17 April 2023.
• Further guidance from the FMA on record-keeping and draft regulations related to record-keeping for CRD are expected in mid 2023.
• On 10 May 2023 the Australian Securities and Investments Commission published a short report on 35 recent greenwashing interventions.

The first climate statements from entities with 31 December balance dates will be due in early 2024, with many entities with balance dates in March and June being required to report from mid 2024, and Q3 2024, respectively, for the first time. Affected listed issuers, banks, fund managers and insurers are working to establish internal processes to prepare CRD, with record keeping obligations commencing during 2023.